July 2013: Economic Sentiment continues to brighten in the euro area and the EU

In July the Economic Sentiment Indicator (ESI) increased by 1.2 points in the euro area (to 92.5) and by 2.4 points in the EU (to 95.0), continuing the upward trend observed since May.

Economic sentiment indicator (s.a.)

July EU: 95.0 - Euro Area: 92.5

Euro area developments

In the euro area, the ESI's increase was driven by improved confidence among consumers and managers in industry, services and retail trade. Only in the construction sector confidence weakened. Economic sentiment improved in four out of the five largest euro area economies, i.e. Italy (+2.9), Spain (+1.2), France (+1.2) and Germany (+0.7), while it deteriorated in the Netherlands (-2.0).

The slight increase in industry confidence (+0.6) resulted from improvements in managers' production expectations and their assessment of the current level of overall order books. The assessment of the stocks of finished products remained virtually unchanged. Of the surveyed items not included in the confidence indicator, the sharply improving assessment of the past production stands out. The assessment of the current level of export order books remained stable. Services confidence saw the sharpest increase of all sectors covered (+1.8), driven by improved assessments of the past business situation and past demand, while demand expectations remained virtually unchanged. Consumer confidence improved markedly (+1.4) and for the eighth successive month. This was mainly due to further easing unemployment expectations and better savings expectations over the next 12 months. Consumers' views on the future financial situation of their households and the future general economic situation also brightened somewhat. Retail trade confidence increased (+0.9), driven by an improved assessment of the present business situation and business expectations, while views on the volume of stocks remained virtually unchanged. The construction sector stands out with lower confidence (‑1.0), resulting from managers' markedly worsened assessment of order books, which failed to be counterbalanced by the more cautious upward revision of employment expectations. Financial services confidence (not included in the ESI) increased by 3.1 points. While the past business situation and past demand were assessed much more positively, demand expectations deteriorated.

Employment plans were revised upwards in industry, retail trade and construction, while remaining virtually unchanged in services. Selling price expectations increased in industry, while remaining broadly unchanged in services and retail trade and decreasing in construction.

EU developments

In the wider EU, the improvement in sentiment was more pronounced (+2.4). On a sector basis, the increases in industry, consumer and retail trade confidence were sharper than in the euro area and construction confidence slipped only slightly. On a country basis, the main reason for the sharper plus was markedly improving confidence in the largest non-euro area EU economy, the UK (+6.9). Contrasting with developments in the euro area, the EU financial services confidence indicator declined slightly (-0.4).

As in the euro area, employment plans in the EU were revised upwards across all sectors except for services. Selling price expectations differed in the EU in that they decreased in retail trade and increased in construction. Consumers' price expectations were revised downwards, in line with assessments in the euro area.

Quarterly survey in manufacturing (conducted in July)

In the euro area, managers' assessment of developments in overall new orders improved markedly after last quarter's deterioration. Complementing an improved appraisal of their competitive position on foreign markets outside the EU, managers also revised their export volume expectations upwards (for the third consecutive quarter). In line with these findings, the figures show an increase in the number of months assured by orders on hand compared with the previous survey carried out in April. Also the balance of managers reporting more than sufficient, rather than insufficient, production capacity decreased and, accordingly, the estimated rate of capacity utilisation increased to 78.3%.

Developments in the wider EU were largely in line with euro area developments. It is noteworthy that July's reading of the number of months assured by orders on hand marked a new historic height in the EU.

The combination of positive developments in new orders, a rise in the number of months assured by orders on hand (in the EU even to historically high levels) and increasing capacity utilisation appears to point to a pending exit of the manufacturing sector from recession.

Industrial confidence indicator (s.a.)

July EU: -10.0 - Euro Area: -10.6

Service confidence indicator (s.a.)

July EU: -4.5 - Euro Area: -7.8

Consumer confidence indicator (s.a.)

July EU: -14.8 - Euro Area: -17.4

Retail trade confidence indicator (s.a.)

July EU: -7.0 - Euro Area: -13.7

Construction confidence indicator (s.a.)

July EU: -31.0 - Euro Area: -32.6

Financial services confidence indicator (n.s.a.)

July EU: 7.1 - Euro Area: 1.7

The next Business and Consumer Survey is due to be published on 30 August 2013.